A supply agreement once presented as a building block of General Motors’ North American electric-vehicle strategy has turned into a costly contractual fight. GM has terminated its long-term sourcing arrangement with e-VAC Magnetics, the U.S. arm of German magnet manufacturer Vacuumschmelze, prompting the supplier to pursue arbitration and payments it says are still owed.
The dispute is particularly significant because e-VAC built a major South Carolina rare-earth magnet factory around the agreement, backed by hundreds of millions of dollars in investment and U.S. government support. The breakdown now touches not only GM and its supplier, but also e-VAC’s lenders and the pending multibillion-dollar acquisition of its parent company. At the same time, it offers a revealing look at what can happen when ambitious EV supply-chain investments collide with rapidly changing production forecasts.
A Deal Built to Last a Decade Ended After Only a Few Years
GM and Vacuumschmelze announced their binding long-term supply agreement in January 2023, turning an earlier memorandum of understanding into a formal commitment. VAC said the planned North American magnet operation would support GM for at least 10 years. The magnets were intended for electric motors used across a substantial portion of GM’s EV portfolio, including the Chevrolet Silverado EV, Blazer EV and Equinox EV, Cadillac LYRIQ, GMC Sierra EV and GMC HUMMER EV. At the time, GM described the arrangement as part of an effort to create a secure, sustainable and cost-competitive North American EV supply chain.
That makes the subsequent breakdown striking. GM notified e-VAC of its intention to terminate the supply agreement on July 1, 2026, regulatory disclosures show. The contract therefore unravelled only about three and a half years after the binding agreement was announced — and just months after initial production had begun at the South Carolina facility built in connection with the offtake arrangement. GM has not publicly disclosed its specific contractual reason for terminating the deal, an important distinction given the broader changes taking place across its EV business.
The Fight Centers on Underused Capacity and Contract Payments
The disagreement did not suddenly appear with GM’s July termination notice. VAC-related financial disclosures say the dispute first emerged in April 2026 and primarily concerned how compensation for underutilized production capacity should be calculated under different contractual frameworks. That detail matters because new industrial plants are commonly planned around expected customer volumes. When actual demand falls below those expectations, long-term contracts may contain mechanisms designed to determine who absorbs the cost of unused factories, equipment and labor.
On July 7, just six days after GM’s termination notice, e-VAC initiated arbitration. The supplier is seeking a declaration that GM’s termination was wrongful under the agreement and an award covering payments it argues GM is obligated to make during the remaining life of the contract. GM separately disclosed that a supplier of a component for EV traction motors had initiated arbitration seeking damages after GM terminated a strategic sourcing agreement. The amount at stake has not been publicly quantified, and both sides face uncertainty: GM says it cannot currently estimate a reasonably possible material loss, while VAC has not recognized an asset based on the arbitration claim because the outcome remains uncertain.
A $500 Million Magnet Plant Was Built Around Major GM Demand
The contract was connected to something much more tangible than a promise on paper. e-VAC established its first U.S. manufacturing operation in Sumter, South Carolina, where the original project announcement called for more than half a billion dollars of investment and approximately 300 new jobs. Initial production began in the fourth quarter of 2025. Regulatory materials now describe the plant as having capacity to produce roughly 2,000 metric tons of permanent magnets annually, with the site designed to scale to as much as 12,000 tons if sufficient future demand supports the investment.
GM was expected to be the dominant customer. VAC CEO Erik Eschen told Reuters in 2025 that as much as 90% of the plant’s output was expected to go to GM, with the remainder supplying the U.S. government. Washington also had a direct interest in the project. The Department of Defense awarded e-VAC $94.1 million in 2023 to acquire manufacturing equipment, establish technical infrastructure and engineer production lines for high-volume domestic magnet production. As a result, the loss of GM is not merely the departure of another buyer; it removes the customer around which most of the factory’s expected output had been planned.
The Lost Contract Has Become a Financing Problem Too
The commercial dispute has already reached e-VAC’s financing arrangements. The Sumter business has a U.S. credit agreement that includes a $300 million construction and term-loan facility, along with an $18 million revolving credit facility. VAC’s disclosures indicate that e-VAC was complying with its financial covenants as of June 30, 2026. The picture changed after GM’s termination notice and the commencement of arbitration, however, as the uncertainty surrounding the plant’s major customer began affecting the company’s financial planning.
On September 24, e-VAC and its lending syndicate entered a forbearance agreement covering specified events of default, including matters arising after June 30 from the customer’s attempted termination of the supply agreement. In practical terms, the lenders agreed under specified conditions to refrain temporarily from exercising certain remedies. The arrangement did not extend the loan’s maturity or reduce its $300 million principal. VAC also disclosed shareholder support arrangements and letters of comfort as part of its liquidity planning. Those disclosures demonstrate how quickly the loss of a major industrial customer can move beyond sales forecasts and into debt agreements, covenant management and questions about a factory’s future cash generation.
The Arbitration Could Change the Price of a $1.9 Billion Acquisition
The timing is additionally complicated because VAC itself is in the middle of a major ownership change. Energy Fuels agreed in June 2026 to acquire VAC from Ara Partners in a transaction initially valued at approximately $1.9 billion. The announced consideration included $718 million in cash and roughly 65.85 million Energy Fuels common shares. Energy Fuels views VAC as the downstream manufacturing piece of a much larger rare-earth strategy intended to connect mining, separation, metals, alloys and finished permanent magnets.
The GM dispute became important enough to alter the mechanics of that transaction. Energy Fuels and the other parties amended their merger agreement in October to address the customer dispute, a possible settlement, certain debt repayments and potential purchase-price adjustments reflecting lost value. The buyer’s pro forma assumptions include an expected resolution value for the dispute. If the actual outcome falls short of that assumption, the purchase-price mechanism can compensate for the difference; a better-than-expected result would instead accrue to VAC and ultimately benefit Energy Fuels if the acquisition closes. In other words, the GM arbitration is no longer simply a supplier lawsuit — it can influence what VAC itself is worth to its prospective owner.
GM’s Broader EV Reset Has Already Produced Billions in Supplier Costs
The magnet dispute is unfolding during a much wider restructuring of GM’s electric-vehicle plans. GM recorded $7.9 billion in charges in its North American business during 2025 related to what it calls its EV strategic realignment. Through the first nine months of 2026, it recorded another $3.6 billion in net charges, including about $2.5 billion connected with commercial negotiations involving suppliers and joint-venture partners and roughly $1.3 billion of losses on supply agreements. GM says it has largely completed recognition of the major cash charges associated with that realignment, although additional costs could still arise.
The automaker is also involved in two arbitrations concerning long-term EV supply agreements. In one case, GM itself initiated arbitration against a battery-material joint-venture partner. In the other, the EV traction-motor component supplier initiated proceedings against GM following termination of its sourcing agreement. That broader context helps explain why long-term supply contracts have become an important financial issue for the company. It does not, however, establish why GM cancelled this particular e-VAC agreement. The confidential arbitration will have to address the contractual facts behind the termination rather than assumptions based solely on GM’s wider EV retrenchment.
GM Still Has Other Paths to U.S.-Made Rare-Earth Magnets
The collapse of the e-VAC deal does not leave GM with only imported magnets. The automaker has deliberately cultivated several domestic sources as protection against one of the automotive industry’s most concentrated supply chains. In 2021, GM signed a long-term agreement with MP Materials covering U.S.-sourced rare-earth materials, alloys and finished magnets. MP’s Independence facility in Fort Worth, Texas, subsequently began manufacturing neodymium-iron-boron permanent magnets in December 2025 after earlier work to establish domestic metal and magnet production.
GM added another source in 2025 through a multi-year agreement with Texas-based Noveon Magnetics. Noveon said deliveries began that July for components supporting GM full-size trucks and SUVs. At the time, GM indicated that its agreements with Noveon, MP Materials and e-VAC would allow it to obtain the majority of the rare-earth magnets it sources directly from domestic manufacturers, although magnets embedded in components purchased from other suppliers could still originate overseas. Those alternative relationships give GM more flexibility than a single-source strategy would have offered. They do not make the e-VAC termination insignificant, especially given how much Sumter capacity had originally been intended for GM.
The Dispute Shows How Fragile Rare-Earth Re-Shoring Can Be
Rare-earth magnets have become a strategic industrial issue because the world remains extraordinarily dependent on China. The International Energy Agency estimates that China accounted for roughly 60% of global mining of magnet rare earths in 2024, around 91% of refining and approximately 94% of sintered permanent-magnet production. That concentration produced real consequences after China introduced rare-earth export controls in 2025. Manufacturers outside China experienced shortages, and some automakers were forced to reduce plant utilization or temporarily suspend production while supplies tightened.
That vulnerability is precisely why governments and manufacturers have spent heavily trying to establish alternatives such as the Sumter operation. The e-VAC dispute illustrates another side of that effort: constructing a domestic factory does not guarantee that its original economics will survive. Expensive magnet facilities need long-term customers willing and able to purchase enough output to keep production lines operating efficiently. In Sumter, public funding, private capital and an ambitious expansion plan successfully created physical manufacturing capacity. The unresolved question is whether that capacity can find durable demand after the customer once expected to take as much as 90% of its output walks away. The arbitration may decide the financial consequences of the broken agreement, but the larger challenge is finding a sustainable commercial future for the factory it helped create.
